Short-term Pell Bill Approved with Problematic Endowment Tax Penalties

The House Education and Workforce Committee passed, by a 37-8 vote, the Bipartisan Workforce Pell Act (H.R. 6585), which would allow students to use their Pell Grant eligibility for short-term training programs that are between eight and fifteen weeks in duration.

In what was a surprise move, the bill includes an offset provision that proposes to pay for the program by removing access to all federal student loans (although Parent Plus loans for non-Pell students are still allowed) for schools that are subject to the endowment tax. If enacted, these provisions would go into effect July 1, 2024

However, after being told of the negative effects the offset proposal would have on students in their communities, several Committee members voiced strong objections during the hearing. In fact, Rep. Lucy McBath (D-GA) was prepared to offer an amendment to strip the offset but did not after receiving indications from Ranking Member Rep. Bobby Scott (D-VA), that the Committee would try to find a different way to pay for the program before it goes to the floor for a full vote of the House.

Other Committee members who voiced concerns included:

• Glenn Grothman (R-WI), who expressed concern about students at the Medical College of Wisconsin, which is in his district, losing their federal loans, as well as “more than 50 other private colleges across the country.”
• Alma Adams (D-NC), who said, “This bill does remove critical federal funding for institutions of higher education that pay (the) endowment tax. So hopefully, we can continue to work on it.”
• Mark Takano (D-CA), who has four colleges in his state paying the tax and two more that will be paying it soon, said, “What sense does it make that we are subjecting one group of students to losing their federal student loans to pay for the risk of (extending short-term Pell to) for-profit institutions.”
• Suzanne Bonamici (D-OR) also spoke in opposition to the offset asking why someone’s donation to their alma mater should pay for a new federal program.

The bill is sponsored by four members of the House Committee on Education and the Workforce, Chairwoman Virginia Foxx (R-NC), Ranking Member Scott, Rep. Elise Stefanik (R-NY), and Rep. Mark DeSaulnier (D-CA).

Under the bill’s provisions, if an institution is subject to the endowment tax, it:

• Is prohibited from awarding a Direct Stafford Loan, Direct Unsubsidized Stafford Loan, or a Direct Plus Loan to any eligible student;
• Is prohibited from awarding a Direct Plus Loan to the parent of an undergraduate with Pell Grant eligibility;
• Must qualify for participation in the Federal Supplemental Education Opportunity Grant (SEOG) program by ensuring all Pell Students receive a total amount of grant aid (including from federal and non-federal sources) to cover their full cost of attendance; and
• Must maintain or increase the percentage of Pell Grant enrollment compared to the year this bill is enacted.

Enacted in 2018, the endowment tax only applies to private, nonprofit colleges and universities that have more than $500,000 in investment assets per full time equivalent tuition-paying student. Because the formula is based on the endowment size per student, it targets institutions based on size, disproportionately hitting smaller colleges. Every year more private colleges are taxed by this formula, which is not inflation-adjusted.

It is currently unclear when the full House will consider the bill and whether it will be taken up by the Senate. There is similar legislation in the Senate, the JOBS Act, introduced by Sen. Tim Kaine (D-VA). The JOBS Act does not include the endowment tax loan loss offset, however.

For more information, please contact:
Karin Johns